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Robert J. Zebrowski, et al. v. Evonik Degussa Corporation Administrative Committee

November 20, 2012

ROBERT J. ZEBROWSKI, ET AL.
v.
EVONIK DEGUSSA CORPORATION ADMINISTRATIVE COMMITTEE, ET AL.



The opinion of the court was delivered by: Ludwig, J.

MEMORANDUM

This is an ERISA action, 29 U.S.C. §§ 1001-1461. Jurisdiction is ERISA § 502(e)(1), 29 U.S.C. § 1132(e)(1), and federal question, 28 U.S.C. § 1331.

Plaintiffs move for prejudgment interest and "other appropriate equitable relief" under ERISA § 502(a)(3), 29 U.S.C. § 1132(a)(3), doc. nos. 53, 54, 59, 60, following the determination of defendants' liability for pension benefits under ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). According to defendants, the measure of prejudgment interest sought is excessive, doc. no. 57.

On September 11, 2012, summary judgment on Counts One, Two, and Three of the complaint was entered against defendants and in favor of plaintiffs -- Robert J. Zebrowski, Robert A. Woodruff, and Gregory Bialy, former executives of RohMax USA, Inc. Sept. 10, 2012 order and mem., doc. nos. 48, 49. It was ruled that defendant Administrative Committee wrongfully denied payment of plaintiffs' vested retirement benefits and violated its duties as administrator and fiduciary of the other two defendants Evonik Degussa Corporation Retirement Plan (pension plan) and Evonik Rohmax USA, Inc. Non-Qualified Pension Plan (top hat plan). Id. Count Four of the complaint was dismissed as moot. Summary judgment was also entered in favor of plaintiff Zebrowski and against defendant Committee on its counterclaim that a portion of his top hat benefits was overpaid and should be returned by him.*fn1 Id.

Given those rulings, which are the law of this case, the parties agree that in March of 2009, plaintiff Zebrowski should have received an additional lump sum payment from the pension plan. Also agreed: on June 19, 2009 and on December 31, 2009, respectively, plaintiffs Woodruff and Bialy should have received additional payments from the top hat plan. See pls. br., doc. no. 54-2 at 11-12 & n.2; Zebrowski decl., doc. no. 54-3, Ex. A; Woodruff decl., doc. no. 54-4, Ex. B; Bialy decl., doc. no. 54-5, Ex. C. "Defendants . . . do not dispute the time period over which prejudgment interest should be paid." Defs. br., doc. no. 57 at 4.

Plaintiffs propose two alternative measures of relief: first, "if the defendant realized investment returns or other financial benefits from the funds it retained, then the plaintiff is entitled to those gains, lest the defendant retain any unjust enrichment from its wrongdoing." Pls. br., doc. no. 54-2 at 6, 7 ("gains that defendants realized as a result of unlawfully retaining Plaintiffs' money"). In plaintiffs' view, this amounts to the rate earned by the pension plan in plaintiff Zebrowski's case, and the rate earned by the company in plaintiffs Woodruff's and Bialy's cases, from the time the benefits should have been paid in 2009 to September 30, 2012.*fn2 The second proposed measure is compensatory: "the investment earnings or other returns that each plaintiff would have realized on the delayed benefits." Id. at 6, 7 ("lost investment returns . . . that plaintiffs actually realized on their other pension plan monies and also would have realized from the withheld funds if the benefits had been timely paid"). As asserted by each plaintiff, these amounts are projected investment returns from personal accounts in which the additional benefits would have been invested if they had been paid in 2009. Using this metric, plaintiffs claim a tax "gross-up" (not a felicitous but a clear enough phrase) on any remedial payments for unfavorable tax consequences that would not have been incurred if the payments had been made in 2009.

Defendants' response: the "only contested issue . . . is the appropriate interest rate to apply." Defs. br., doc. no. 57 at 1. They say that both rates proposed by plaintiffs would generate "a windfall analogous to punitive damages." Id. at 1-2, 5 ("profit disgorgement rate" would provide a return "greater than 150%" of the benefits that are due over "the few years" that payments were delayed); id. at 2 ("rate of investment return . . . is based purely on speculation as to which investment options each Plaintiff may have invested in"); id. at 10 (no cases in this Circuit support the use of investment returns).

Defendants propose two different prejudgment interest calculations -- either the statutory rate under 28 U.S.C. § 1961,*fn3 or the interest rate specified in the pension and top hat plans for computing lump sum payments. Defs. br., doc. no. 57 at 1-3. The percentage for neither of these is given. Adverting to Holmes v. Pension Plan of Bethlehem Steel Corp., 213 F.3d 124 (3d Cir. 2000), defendants observe that the statutory rate "was approved . . . for delayed payment of ERISA benefits." Id. at 3. In the alternative: the plans' lump sum interest rate "would be consistent with how the Internal Revenue Service would suggest a plan make a participant 'whole' for delayed pension payments."*fn4 Id.

"A beneficiary has a general right of action 'to enforce his rights under the terms of the plan,'" without reference to whether the relief sought is legal or equitable. US Airways, Inc. v. McCutchen, 663 F.3d 671, 674 (3d Cir. 2011), cert. granted, No. 11-1285, 2012 WL 1439294 (U.S. June 25, 2012) (quoting Great-West Life & Annuity Ins. Co. v. Knudson, 534 U.S. 204, 221 (2002)); ERISA § 502(a)(1)(B), 29 U.S.C. § 1132(a)(1)(B). Another ERISA civil enforcement section permits a plan beneficiary to obtain "appropriate equitable relief," in part to redress plan violations and a plan fiduciary's breach of duty -- ERISA § 502(a)(3)(B), 29 U.S.C. § 1132(a)(3)(B). "Appropriate equitable relief" refers to "those categories of relief that traditionally speaking (i.e. prior to the merger of law and equity) were typically available in equity.'" US Airways, 663 F.3d at 675 (quoting CIGNA Corp. v. Amara, 131 S. Ct. 1866, 1878 (2011)) (emphasis in original); Sereboff v. Mid Atl. Med. Serv., Inc., 547 U.S. 356, 362 (2006); Mertens v. Hewitt Assocs., 508 U.S. 248, 256 (1993). As in Amara, the present motion for prejudgment interest "concerns a suit by a beneficiary against a plan fiduciary (whom ERISA typically treats as a trustee) about the terms of a plan (which ERISA typically treats as a trust). . . . It is the kind of lawsuit that, before the merger of law and equity, . . . could have been brought only in a court of equity, not a court of law." 131 S. Ct. at 1879.

Payment for the time-value of money in the form of "an award of [prejudgment] interest is an equitable remedy enforcing an ERISA plan provision, albeit an implied one, within the meaning of section 502(a)(3)(B)." Fotta v. Trustees of the UMWA Health & Retirement Fund of 1974, 165 F.3d 209, 214 (3d Cir. 1998). Our Court of Appeals "ma[d]e explicit that interest is presumptively appropriate when ERISA benefits have been delayed." Id.; see also id. at 215 (Alito, J., concurring) ("[s]uch an award is recognized as appropriate equitable relief in comparable circumstances under the law of trusts").

Plaintiffs' two alternative equitable remedies: prevention of unjust enrichment by disgorgement of pension plan and company profits; and surcharge against defendant Committee for lost investment returns. Amara explained that preventing unjust enrichment and surcharge fall within the traditional category of equitable relief:

Equity courts possessed the power to provide relief in the form of monetary "compensation" for a loss resulting from a trustee's breach of duty, or to prevent the trustee's unjust enrichment. . . . Indeed, prior to the merger of law and equity this kind of monetary remedy against a trustee, sometimes called a "surcharge," was "exclusively equitable." 131 S. Ct. at 1880 (citations to Restatement (Third) of Trusts and treatises on trust law omitted). See US Airways, 663 F.3d at 677 ("principle of unjust enrichment is broadly applicable to claims for equitable relief"); Skretvedt v. E.I. DuPont de Nemours, 372 F.3d 193, 206 (3d Cir. 2004) ("prejudgment interest is typically granted to make a plaintiff whole because the defendant may wrongly benefit from use of plaintiff's money") (quoting Schake v. Colt Indus. Operating Corp. Severance Plan for Salaried Emp., 960 F.2d 1187, 1190, 1192 n.4 (3d Cir. 1992)); Fotta, 165 F.3d at 213 (an award "not only ensures full compensation, but also serves to prevent unjust enrichment"). See also Restatement (Third) of Trusts § 100 (2012) ("trustee who commits a breach of trust is chargeable with . . . the amount of any benefit to the trustee personally as a result of the breach"); Restatement (Third) of Restitution and Unjust Enrichment §§ 1, 3, 41, 43, 51, 55 (2011) (disgorgement of the benefits of wrongful conduct).

In equity, "the surcharge remedy extended to a breach of trust committed by a fiduciary encompassing any violation of a duty imposed upon that fiduciary." Amara, 131 S. Ct. at 1880. But "a fiduciary can be surcharged under § 502(a)(3) only upon a showing of actual harm -- proved (under the default rule for civil cases) by a preponderance of the evidence." Id. at 1881-82; see also id. at 1885 (Scalia, J., concurring; Thomas, J., joining concurrence) ("amount for which an administrator may be surcharged is . . . the 'actual harm' suffered").

Our Court of Appeals instructs that ERISA's objectives are effectuated "by recognizing, under principles of equity, that beneficiaries should be fully compensated and that any unjust enrichment of plans at beneficiaries' expense should be avoided." Fotta, 165 F.3d at 214. However, the selection of the most appropriate measure for an award of prejudgment interest involves an exercise of judicial discretion. US Airways, 663 F.3d at 676-77; Fotta, 165 F.3d at 214 ("awarding of prejudgment interest under ERISA is within the district court's discretion, 'given in response to considerations of fairness and ...


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